Hard Times for Student Borrowers

Hard Times for Student Borrowers

Article excerpt

KELLY LYNCH, A former Columbia College Chicago film and video major, is paying educational loan lender Sallie Mae $600 a month, about é percent of his total student loan debt of $60,000. Though Lynch, 21, never received his degree from Columbia and barely survives with freelance film and video work, he considers himself lucky.

Lynch consolidated his loans through Sallie Mae a few months before the nation's largest student loan lender suspended its student loan consolidation program in April. The policy shift left many other young borrowers with inflated interest rates.

"To leave college and enter the real world with such grave debt is a setup for failure," says Lynch. "What good are welleducated kids who, right out of the cradle, have major financial obligations before most own a house, a car or know where the nearest grocery store is?"

Sallie Mac's decision came in the midst of what many in the student loan industry call a crisis. From August 2007 to May 2008, at least 103 lenders stopped or suspended writing student loans, according to Finaid.org, a student-loan resource website. The companies that have stopped include Nelnet, the College Loan Corporation and CIT Group-among the nation's largest lenders.

In May, the Wall Street Journal reported that the private student loan market grew by as much as 25 percent a year for a decade. That momentum has evaporated. For the first time in 40 years, no bonds backed by student loans were purchased in the first quarter of 2008, according to Forbes.

"Lenders are just having difficulty raising the capital," says Kevin Bruns, executive director of America's Student Loan Providers, an industry trade group. "We're going into the summer months, when about 75 percent of the student loans are processed. So that means about 75 percent of $60 billion will be processed this summer, [but] there isn't $45 billion in capital in the system right now because lenders can't raise it. …